How to Evaluate Marketing Metrics

July 24, 2018

Marketing metrics and KPIs are certain measurements by which companies can judge the effectiveness of individual marketing efforts, allowing them to tweak and change things as needed.

However, despite knowing the importance of this kind of data, many executives are unsure of how exactly to interpret and use it in the right way. How do you know if your stats are good, how do you know if your marketing efforts are competitive? To help you out, here are some essential marketing metrics, and how to understand what they mean to you.

Customer Retention Rate

WHAT IS IT?

Customer retention rate tells you how many customers you still have, versus how many you started with over the length of a given period. The formula is the number of new customers acquired in a period, subtracted by the number of customers at the end of the period; that number is then divided by the number of customers at the start of the period, and multiplied by 100.

((No. of customers at end – New customers) / Customers at start) X 100

WHAT DOES IT MEAN?

Customer retention rate is important for understanding the current health of your marketing efforts, and where you need to be directing them moving forward. A loyal customer is typically more valuable to you than a new one due to the acquisition costs associated with new customers. As such, if you are not retaining current customers, you will likely have to retool your marketing to not only target high value leads, but to check that the message that you are pushing in marketing is being backed up in fulfillment. You can evaluate your customer retention rate by comparing it with averages within your industry. However, in most industries, the top handful of companies will have retention rates that are above 90%.

Customer Lifetime Value

WHAT IS IT?

Something that will inform your retention rate as a marketing KPI is the customer lifetime value (CLV or LTV). A CLV shows the economic value of a customer to your business for the entire time that they are a customer, from first purchase to final purchase.

Customer Lifetime Value = Annual Value per Customer x Number of Years the customer stays with the organization

WHAT DOES IT MEAN?

This metric shows you not only how valuable certain customers are, but how much you should be spending to acquire new customers through certain avenues. Combined with your retention rate, it can also show how healthy your customer relationships are. To use this metric in marketing, the most important thing is to make sure that you are not spending more on certain customers than they are “worth.” For example, if it costs you $200 to acquire a customer through Facebook ads, but their CLV is only $150, you will want to consider a different tactic.

Traffic and Bounce Rate

WHAT IS IT?

Traffic is the total number of visitors to your site, and the bounce rate tells you what percentage of those visitors are leaving your website before properly engaging. These metrics can be tracked with software like Google Analytics.

WHAT DOES IT MEAN?

These two metrics can work together to help you understand what’s going right and wrong, particularly when it comes to digital marketing efforts. You can see how many eyes your site is getting, and where they are coming from; but, just as importantly, you can see how well your site is doing at delivering on marketing promises. If you have high traffic overall, but your bounce rate is also very high, you are either misleading prospects with content marketing, or not engaging new site visitors properly once they land, and likely missing out on potential customers. Your aim should be to keep that bounce rate as low as possible, but a rule of thumb says anything above 40% is cause for concern.

Cost per Lead

WHAT IS IT?

To calculate cost per lead, you take the average monthly cost of your chosen campaign and compare it to leads generated from that same channel over that period. This shows you which channels are giving you the best return on your investment.

Marketing Spend / Total New Leads = Cost Per Lead (CPL)

WHAT DOES IT MEAN?

Your cost per lead metric will tell you more specifically which marketing channels are the most successful, economical, and thus worth investment in. Interpreting it can help you use your marketing budget wisely. If you find that you are getting a lot of leads from channels with a low cost per lead, those might be the ones to invest more resources in. It will also help you to work out another crucial metric: the return on investment (ROI) of your marketing efforts.

Marketing ROI

WHAT IS IT?

One of the most important of all of these marketing metrics, your marketing ROI, is created by comparing cost per lead against the lead-to-close ratio. This is then compared against average customer value.

ROI = (Incremental Profit – Campaign Cost) / Campaign Cost

WHAT DOES IT MEAN?

Your marketing ROI is the best way to know the overall success of your marketing efforts, specifically by helping you to know if your investment is worth it. When it comes to evaluating ROI, a positive ROI is obviously your goal. You can compare your ROI with your marketing budget and goals, and use it to realistically plan both of these for the future.

This might seem like a lot of data to track and interpret—and it is. What’s more, these are only a fraction of the available marketing metrics that are out there to help you run your business. However, the good news is that it is easy to understand them with the help of smart business intelligence tools like Grow dashboards. Data is making marketing smarter, and tracking these metrics is the best way to ensure that you help your future best customers to find their way to you. Request a demo today to find out more about how Grow can help you with this.